I’ve covered Vudu for awhile and was one of the first people to have the on demand video streaming box. I was really impressed with the business model, value proposition to consumers and studios, as well as the added benefits Vudu added to their product over time.

Initially Vudu launched with no HD, no television shows, no wifi, a modest hard drive, no adult content, and no integration with other web apps.

Fast forward to now where Vudu has HD and Blu Ray quality HD, a small collection of tv shows for download, wifi built in, a larger hard drive, adult content (Walmart has already turned that feature off…..per techcrunch you perv), and Vudu labs a collection of web apps like youtube and pandora.

Although I probably spent a good 4-8 hours watching content on my Vudu a month, one thing the startup didn’t have was funding, marketing budget, and an install base that would let their digital rental and buying service break even.

In a good economy, I am sure Vudu would have been able to probably overcome these issues but with limited awareness for the product and retail distribution flat, the company opted to explore acquisition partners.

About a month back Walmart was rumored to be acquiring Vudu for $50 million. The final price tag was double that an indication that Vudu got another bidder to the table many of which believe to be was Cisco. Most likely Vudu was ready to take the $50 million but leaked the story in hopes of bringing another company to the table. In the scheme of things $50 million to Walmart and Cisco really isn’t much at all.

So now what? Does this purchase make sense for Walmart?

I am biased since Vudu is probably one of my favorite possessions, but I see this being a good deal for Walmart. Most of the pundits disagree with me but lets put this in context here.

Walmart is one of the largest sellers of electronics in the world. Vudu was no longer pushing their boxes but rather televisions and Blu Ray players with Vudu streaming technology built in. If Vudu didn’t have products coming to market from makers like Samsung, LG, Vizio, and Toshiba, then maybe this wouldn’t make sense. However, Vudu has these partnerships lined up and a lot of these products will be at Walmart.

Getting a consumer to buy a Vudu box for $100-$200 is one thing. Getting a consumer to buy a television they were already going to buy which has Vudu integrated in it is a lot easier. Walmart can now market their new company as well as train their sales team to push Vudu enabled televisions to those interested over televisions that don’t have the technology enabled.

In the end, Vudu ran into problems when they couldn’t build awareness for their product and also the fact it was hard to find expensive to buy. With Walmart now behind the company and a new fleet of televisions coming to market, I look for Vudu to make significant inroads with consumers in 2010 and 2011.

I think television makers will also be more enthuiastic to integrate Vudu into their products knowing, Walmart is incentivized to push them in retail which also adds some more momentum behind this deal.

In the end, the metric that will really dictate whether this was a successful acquisition will not be the amount of units shipped, but the amount of households that utilize the Vudu functionality and the amount of movies rented or purchased. Its unclear just how aggressive Walmart will be in pushing Vudu to the next level, but given the hefty price-tag, the positive reaction people have to the product, and America’s love affair for movies and convenience, its not hard to imagine this being a smart move that pays off down the line.